Income-oriented investors tend to be attracted to Altria Group (NYSE: MO) due to its high 8.6% yield and long history of increasing its dividend every year since 2009. However, revenue growth has been difficult to come by for the company, with sales declining each year. last two years as well as in the first quarter of 2009. this year.
This could be about to change, however, with Altria’s NJOY business seeing increased growth following a recent positive announcement from the US Food and Drug Administration (FDA).
NJOY’s growth potential has propelled
While the FDA is more known for its tough stance on tobacco products, particularly flavored products, Altria recently received some good news when the government agency authorized the sale of four menthol e-cigarettes from NJOY. Two of the products – NJOY’s Ace Pod menthol 2.4% and Ace Pod menthol 5% – are refillable pod products that work with its Ace vaping device. In addition, two disposable electronic cigarette products, NJOY daily menthol 4.5% and NJOY daily extra menthol 6%, have also been authorized.
Altria acquired NJOY last year for $2.75 billion in cash, plus a potential $500 million in additional payments if certain products received FDA approval. Following the move, Altria will pay NJOY’s former owners an additional $250 million, with the final $250 million contingent on approval of blueberry and watermelon-flavored capsules that work with its ace 2.0 device. Given the scrutiny over flavors that appeal to teens, approval of those products seems less likely.
However, with NJOY now the only FDA-cleared flavored vaping product manufacturer on the market, it is well-positioned to grow its market share in the United States. At the end of the first quarter, it had just 4.3% market share for consumables and 11.5% for devices, so it has plenty of room to grow.
Altria also wants to increase brand distribution and recently launched its first retail program to give NJOY products greater exposure to retailers. Distribution was increased to 80,000 outlets at the end of the first quarter and the company plans to increase this number to 100,000 outlets by the end of the year.
The only problem Altria has had regarding NJOY is that illegal Chinese flavored vaping products, such as those made by Elf Bar, have continued to take market share in the United States despite being illicit products. These products often enter the country labeled as other items to circumvent U.S. regulations and end up in vaping stores where they are sold illegally. Altria is suing manufacturers, wholesalers and retailers to try to slow sales of illegal products.
For now, Altria is the only maker of legal flavored vaping products on the U.S. market. And even if that flavor is menthol, that should drive growth.
Is it time to buy Altria?
NJOY gives Altria the opportunity to return to some revenue growth, but even with sales down slightly, the company is still generating a huge amount of cash flow. Last year, the company generated $9.3 billion in operating cash flow and $9.1 billion in free movement of capitalwhich excludes capital expenditures (capex). This has allowed the company to achieve a high dividend coverage ratio of 1.3 times its free cash flow, demonstrating a high level of dividend security and the ability to continue increasing it in the years to come.
At the same time, the stock trades at a forward price-to-earnings (P/E) ratio of about 9 times, which is a very reasonable valuation. If NJOY can help reignite some growth, that multiple could rise.
Given its attractive yield, well-covered dividend, low valuation, and NJOY’s potential to generate some revenue growth, Altria appears to be a solid option for investors looking for an attractive stream of income from dividends which should continue to grow over the years.
Should you invest $1,000 in Altria Group right now?
Before buying Altria Group shares, consider this:
THE Motley Fool Stock Advisor The team of analysts has just identified what it believes to be the 10 best stocks Investors need to buy now…and Altria Group isn’t one of them. These 10 stocks could deliver monstrous returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $757,001!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction advice, regular analyst updates, and two new stock picks each month. Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 24, 2024
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Can NJOY Help Push Altria Group Stock Higher? was originally published by The Motley Fool
